By Dr. Gyan Pathak
While targeting political parties in opposition, the Prime Minister of India Narendra Modi had equated ‘subsidies and freebies’ as ‘reveri culture’ which he wanted to be stopped. His languages was politically surcharged in such a manner that game impression to the public that only political parties in opposition are indulging is such a culture and destroying the state finances, and BJP is not doing the same. However, the fact is, BJP ruled Uttar Pradesh is among the top five states in the country with largest rise in subsidies over the last three years. State like Gujarat also spends over 10 per cent of its revenue expenditure on subsidies.
Thus, PM Modi’s ‘reveri culture’ rhetoric is purely political, but now involving all the three pillars of democracy – executive, legislature, and judiciary, apart from economists, intelligentsia, and common men. Enthusiasts against giving anything to the poor for their well-being and survival picked it up and went to the Supreme Court of India pleading for reasonable restriction on such expenditure on the ground that it destroys state finances. Supreme Court in turn set up a panel and wanted thorough discussions on it including what constitute ‘freebie’.
Everyone has one’s own idea, and due to lack of and standard defined and acceptable definition available, all the diagnosis and treatments for this ailment seem to be wrong. The latest being the State Bank of India’s economic report written by the groups chief advisor Soumya Kanti Ghosh, who suggested that the Supreme Court-led panel cap such welfare schemes at 1% of the state’s GDP or of its own tax collection. The report presumes even wrong definitions and facts about freebies.
For example, one can see the online dictionaries or other resources only to find there that even loans taken or given with the intention of not paying back is a form of ‘freebie’. But the SBI report misleads us twice – fist by telling us that ‘loan wirte-offs are purely technical in nature’ and secondly ‘added back to bank books once recovered.’ We have already proved cases of bank frauds which tells us that ‘loan write-offs’ and not always technical in nature, and also that large amount always remains unrecovered and hence there is no question of added back to the bank books. Therefore, the report saying ‘equating the haircuts with freebies or even the loan write-offs is at best a deeply flawed argument’ is wrong.
Most objectionable part of the SBI report is concerning pension to the government employees, which had been only social security for government employees in the country before the scheme was done away with in 2004 under BJP rule. In its place, new pension scheme was implemented. Even at that time the BPJ’s decision shocked the nation, because people (barring the rich and BJP’s rank and file and bhaktas) believed that a person who sacrifices his prime time of his life in government service must get pension as financial security in his old age. It is unethical to leave them on their own fate. Now several political parties in opposition have promised to implement the old pension scheme if they come to power.
The SBI report presumes even the ‘old pension scheme’ a freebie, a very sad approach, since old pension scheme had always been treated as social security coverage for the old people in return for their service and sacrifice throughout their productive life. However, the report now cites the example of just three states, Chhattisgarh, Jharkhand and Rajasthan whose annual pension liabilities estimated at Rs 3 lakh crore. When looked in relation to these states own tax revenue, pension liabilities are quite high for Jharkhand 217 per cent, for Rajasthan 190 per cent and for Chhattisgarh 207 per cent.
The report argued that for states contemplating the change, it would be as high as 450 per cent of own tax revenue in case of Himachal Pradesh, 138 per cent of own tax revenue in Gujarat, and 242 per cent of own tax revenue for Punjab.
The report also mentions the unfunded pension liabilities of the state which have gone back to the old pension scheme or pay as you go scheme, or planning to do so as percentage of won tax revenue, it’s a staggering 450 per cent for Himachal, 138 for Gujarat, 207 for Chhattisgarh, 190 for Rajasthan, 217 for Jharkhand and 242 for Punjab.
The report argued that the combined liabilities of these states which have reverted to the old pension scheme or have promised to do so stood at Rs3,45,505 crore in FY20 and the same will go up as percentage of GSDP of Chhattisgarh to 1.9 and increased burden of Rs60,000 crore from Rs6638 crore.
For Jharkhand it was Rs 6,005 crore and will be 1.7 per cent of GSDP and will increase by Rs 54,000 crore; Rajasthan Rs 20,761 core, 6 per cent and will jump by Rs 1.87 lakh crore; Punjab – Rs 10,294 crore, 3 per cent and will rise by Rs 92,000 crore, Himachal-Rs 5,490 crore, 1.6 per cent of GSDP and will rise by Rs 49,000 crore and for Gujarat the pension burden was Rs 17,663 crore in FY20 and will jump to 5.1 per cent of GDP and will rise by 1.59 lakh crore.
Merely on the basis of expenditure the state that used the prime time of life of a person must not desert them in their old age, which makes the state inhuman. It is wrong to presume that pension is a freebie and should not have been added to other liabilities such as loans taken by state to reach at an astronomical figure to influence decision in the Supreme Court. The report pointed out that the budget borrowings of states have reached around 4.5 per cent of GDP in 2022, because of the guarantee of the state to support its citizens.
Such guarantee amount is significant at 11.7 per cent of GDP for Telangana, 10.8 per cent for Sikkim, 9.8 per cent for Andhra, 7.1 per cent for Rajasthan, and 6.3 per cent for Uttar Pradesh. While the power sector accounts for almost 40 per cent of these guarantees, other beneficiaries include sectors like irrigation, infrastructure development, food and water supply.
The report has quoted RBI on financial assistance, utility subsidies, loan or fee waivers and interest free loans announced by the state in their budgets ranges from 0.1 to 2.7 per cent of states’ GDP. The freebies have exceeded 2 per cent is some of the highly indebted states such as Andhra Pradesh and Punjab.
Let us remember that the RBI’s recent bulletin of June has reminded, “While there is no precise definition of freebies, it is necessary to distinguish them from public/merit goods, expenditure on which brings economic benefits.” (IPA Service)